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Our specialists have extensive experience across various industries, making us adept at identifying and qualifying R&D activities that others might miss.
Research and Development (R&D) Tax Credit
Understanding and taking full advantage of the credit for increasing research activities
Ryan’s R&D Tax Credit services offer an integrated solution using proprietary technology to streamline the identification, calculation, and filing processes for the R&D tax credit. Our approach ensures that clients maximize the recovery of tax overpayments to the Internal Revenue Service (IRS) while maintaining full compliance with IRS and Treasury regulatory requirements.
With a dedicated team of experienced professionals, Ryan helps businesses across multiple industries navigate the complexities of R&D tax credit analyses, ensuring both efficiency and transparency throughout the engagement. Our specialists support your accounting team and certified public accountant (CPA) to ensure timely filing of your tax returns each year.
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Elevate Your Innovation with Ryan’s R&D Tax Credit Expertise
At Ryan, we go beyond the ordinary to bring exceptional value to your business through a comprehensive R&D tax credit analysis. Our team of experts is dedicated to maximizing your credit claims to reduce or eliminate your business’s tax burden. Ultimately, our process allows taxpayers to further innovation and increase their competitive advantage.
Discover why leading companies choose Ryan as their trusted partner to navigate the complexities of Internal Revenue Code (IRC) Section 41 and relevant case law.
Tailored Solutions:
We customize our approach to fit the unique needs of your business, ensuring you receive the maximum benefit.
Comprehensive Support:
From initial assessment to detailed documentation and audit defense, we are with you every step of the way.
Proven Track Record:
Our success stories and client testimonials speak to the value we bring to businesses like yours.
Technology/Software:
Our suite of proprietary software allows for the highest efficiency process in the industry, saving our clients time and resources.
Exceptional Client Service:
Our corporate values set the bar in the industry. Your engagement team will be an asset to you throughout the tax year.
Advantages of Claiming the R&D Tax Credit
Claiming the R&D tax credit can provide your business with significant financial benefits:
- Tax Savings: Reduce your federal and state tax liabilities to maximize the benefit.
- Increased Cash Flow: Invest tax savings back into the business to start new R&D initiatives, purchase new equipment, or hire additional staff.
- Competitive Edge: Strengthen your market position through continuous innovation.
- Future Tax Planning: Plan for provisioning or other tax forecasting.
Industries That Benefit from the R&D Tax Credit
The R&D tax credit applies to a wide range of industries, including but not limited to:
- Manufacturing: Creation of new or improved product designs, enhanced production techniques, and automation of existing processes.
- Software Development: Creation and enhancement of software applications, artificial intelligence models, and custom integration platforms.
- Engineering: Development of new solutions and techniques for structural, civil, electrical, and mechanical engineering disciplines.
- Health Care: Innovations pertaining to new pharmaceuticals, including delivery mechanisms or formulations, medical devices, and analysis and detection equipment.
- Food and Beverage: Enhancements in packaging, ingredient processing techniques and automation, and new ingredient testing.
- Agriculture: Advances in farming techniques and equipment to increase crop yields, optimize natural resource usage, and improve facilities for livestock and energy recapture.
Steps to Claim Your R&D Tax Credit
Claiming the R&D tax credit involves several steps:
Scoping and Eligibility Analysis
- Conduct initial discussions and business overview summary
- Obtain preliminary financial details
- Provide preliminary credit benefit estimate
Business Activities and Expenditures
- Gather financial reports and technical project documentation
- Conduct in-depth interviews with financial and technical subject matter experts
- Determine qualified activities through customized interview plan leveraging proprietary software
Calculation and Documentation
- Identify R&D activities and quantify expenses for each business component
- Provide in-depth quality review of forms and supporting details
- Conduct stakeholder meeting to review study deliverables
Reporting and Audit Support
- Provide credit estimates for upcoming tax year provisions
- Review team recommendations to improve subsequent analyses
- Provide audit support through appeals conference
Understanding R&D Tax Credit Qualification Criteria
Business Component
An R&D study involves an in-depth analysis of each project, or business component, undertaken during a given tax year. A business component is any product, process, software, technique, formula, or invention that is intended to be:
- Held for sale, lease, or license: This includes tangible products developed for the market.
- Used in the taxpayer’s trade or business: This encompasses internal use software, manufacturing processes, and other business methodologies.
Examples of business components that might qualify include:- New product designs or formulations
- Improvements to existing products
- Development of new or improved manufacturing processes
- Creation of innovative software solutions
- Research that supports an application for patent protection
Project Qualification
In general, qualified research activities (QRAs) must be part of a process of experimentation for a purpose relating to a new or improved function, performance, reliability, or quality, with the intent that the technical information to be discovered will overcome uncertainty pertaining to the development of a new or improved business component. This four-part test criteria, as detailed below, is the foundation to determine whether a project can be included in the credit calculation:
- Permitted Purpose: Project specifications must aim to improve the functionality, performance, reliability, or quality of a product.
- Elimination of Uncertainty: The research must be intended to eliminate uncertainty regarding the capability or method of developing or improving a product or the appropriate design of the product.
- Process of Experimentation: The activities must involve the development of one or more hypotheses, evaluation of design or process alternatives, and experiments to test and analyze each iteration to ultimately achieve project requirements.
- Technological in Nature: The activities must rely on principles of physical or biological sciences, engineering, or computer science.
Qualified Research Expenses (QREs)
Once the list of qualified business components is verified, Ryan’s team begins to quantify the associated QREs to include:
- Wages: Salaries and wages of employees directly involved in R&D activities and technical supervision or support of those employees.
- Supplies: Costs of supplies used in the R&D process, excluding capital items and general administrative supplies.
- Computer Rental: Expenses attributed to the use of off-premises computers to conduct research activities (i.e., cloud computing).
- Contract Research: 65% of the costs for research conducted by outside contractors.
Methods for Calculating Your R&D Tax Credit
Once the current year QREs are calculated, there are two primary methods for calculating the comparative base amount:
- Regular Credit Method: The base amount represents a company’s historical R&D spending as a percentage of its prior four-year average gross revenues.
- Alternative Simplified Credit (ASC) Method: The base amount equals half of the average QREs for the three preceding tax years.
Documentation
Maintaining comprehensive documentation is essential for substantiating your R&D tax credit claim. This includes:
- Project Descriptions: Detailed records of each business component, including objectives, methodologies, and results for each research project.
- Expense Tracking: Accurate tracking of all related expenses, including labor, materials, and contract research.
- Evidence of Experimentation: Documentation of the experimental processes and iterations undertaken to resolve technical uncertainties, including the technical contributions of everyone involved in the R&D project.
If certain documentation is limited or not available, Ryan employs IRS-approved methods to accurately estimate QRAs and QREs for each project.
Exploring Related Tax Topics
Section 174 Connection (TCJA)
The Tax Cuts and Jobs Act (TCJA) has implications for R&D expenditures under Section 174. Effective from 2022, R&D costs must be capitalized and amortized over five years (15 years for foreign research). Learn how this affects your R&D strategy.
NOLs/Utilization
There are many net operating losses (NOLs) in the normal course of starting a new business. Discover how to leverage NOLs to maximize your tax benefits.
Offset
Eligible small businesses (ESBs) can use the R&D tax credit to offset the alternative minimum tax (AMT). An ESB is defined as a business with less than $50 million in average gross receipts (i.e., revenues) for three preceding years.
Qualified small businesses (QSBs) can elect to offset up to $500,000 in payroll tax credits if there is insufficient regular tax liability. A QSB is defined as a business with less than $5 million in annual gross receipts and having gross receipts for no more than five years.
Find out if your business qualifies.
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Key Stats
$1.3 million in federal R&D tax credits over a four-year span for a California medical device maker during a Ryan go-behind study
$2.5 million in federal R&D tax credits and an additional $700,000 in state R&D tax credits for a U.S. subsidiary of a multinational parent corporation with multiple engineering and manufacturing locations across the United States
$17,000 in federal R&D tax credits for a startup, five-person video game developer, which elected to offset its payroll taxes, allowing it to use the saved capital for other essential needs
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Explore Ryan’s Comprehensive Service Offerings
Beyond R&D tax credits, Ryan offers a wide range of tax services to meet your business needs. Learn more about our other service lines and how they can benefit your organization:
Ryan is your premier partner for R&D tax credits in the United States. Our expertise in IRC Section 41 and Section 174 ensures that your business can maximize its innovation efforts and reap substantial tax benefits while remaining compliant with existing tax law.
For our UK-based R&D Tax Credit services, visit our partner site, Innovation Funding.
In Canada, our experts are standing by to help you with Scientific Research and Experimental Development (SR&ED) Tax Incentives.